from the scaling-the-virtual-walls dept

I'll be honest about my viewpoint to start this piece: I hate geo-restrictions, particularly on digital goods. I simply cannot see how they benefit anyone. Customers are blocked or pay different prices for like goods, often times angering them (not something you typically want to do to customers). Companies feel the brunt of this anger, or else at least feel the impact of the a restricted customer base through their own unwillingness to deal fairly in a global marketplace. Perhaps most importantly, for savvy customers, there are tools to simply get around the artificial barriers these companies erect, making them just more useless DRM-like nonsense.

And, apparently, some consumer advocate groups out there are beginning to feel similarly. Take Australian advocacy group CHOICE, for instance, who recently submitted to a parliamentary inquiry on technology pricing with the opinion that consumers down under should be spoofing their IP addresses to get better deals from global providers.

The group has today released a guide explaining how to do so using virtual private networks (VPNs) and alternative domain name systems (DNSs).

Choice also suggested setting up US iTunes accounts and using surrogate US addresses for forwarding packages from American stores. Choice has noted previously that Australians pay 52 per cent more for digital music downloads on iTunes compared to US users.

If you just heard a loud thumping sound, it was probably the collective fainting of technology and media providers over the idea of Australians paying the same price for goods as Americans. You can almost hear their angry cries now, can't you? "This is geo-piracy! They aren't playing by the rules!"

And that might be true. But the thing is, if the rules suck, why should you play by them? Take the iTunes example: how in the world, with a globally connected internet and the offering of digital goods, could it possibly make sense for a consumer in one nation to pay more than a consumer in another? Excluding the false barriers that have been erected (like licensing, geo-restrictions, etc.), where is the logic in this practice? Minus the occasional invalidation of product warranties, there is none, as CHOICE notes.

"As long as consumers are aware of the risks and do their due-diligence, there is no reason why they cannot pick up a bargain online with confidence," Levey said. "It also undermines the virtual walls these companies have built around the Australian market, which in the long term will help bring down prices to a global parity."

Or, in other words, position global providers to actually compete in a global marketplace, not the artificially segmented anti-consumer marketplace they've constructed for themselves.

Reader Comments

Of course Australians should pay more:
1. They should pay for their ancestors crimes (also, since they are the descendants of criminals, their geo-spoofing piratical ways should not surprise anyone).
2. The bits have to swim a long distance to get to Australia, so all digital goods should cost a lot more.

Re: Re: Re:

"how in the world, with a globally connected internet and the offering of digital goods, could it possibly make sense for a consumer in one nation to pay more than a consumer in another?"

While I definitely agree with the sentiment, there are some valid excuses - taxes, compliance with local censorship and ratings rules and so on. But, 52%? Yeah, that's taking the piss.

But that just serves to illustrate what I've been saying for years. If the media companies has put their efforts into normalising their licencing models, adapting to the fact that international borders are easily crossed online, adjusting to better serve other markets in the way the customer wants, etc. then this would not be an issue. Instead, they whined about piracy and wondered why their substandard product being offered at inflated prices might not be gobbled up instantly by consumers.

Adding 52% on to a price just because you happen to be sitting on Australian soil rather than US soil? That's very silly, and a prime driver for people to try and find their way around it - especially as people can check the price being offered to Americans as easily as they can check their own.

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Yes being an Australian we get hit with the Australia tax from everyone, they used to say it was because our dollar was not worht as much as the American.

That situation has changed and ours is now worth more and has been for a few years, I know it will go back to below it but check steam for example for games we get ripped off hard.

Could an American ever envisage paying over $100 for an xbox game?

The one good thing to come out of the inquiry is that since they started parading it around prices on steam have actually come down so instead of $100 it is now $80 for a AAA game. (Just looks like they don't want to get regulated so they are trying to make it not look so bad after the fact.)

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IN AFACTS's defence (and OMG I hate you now for making me do this.. oh your evil TAC!!!!) AFACT do not set the prices on products that we pay too much for. Movies are actually on par with the rest of the world ($19 for new release DVD $29 for BlueRay as RRP)

The problem is publishers of games and software. Adobe, Microsoft, EA, Ubisoft, etc are all the major problems. Hardware manufactures too have this problem too.

AFACT are problematic towards copyright and geo-restrictions on movies etc but not about pricing.

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AFACT or MPAA:OZ as I like to think of them, like to pretend that your all dirty thieves.
While your movies might be on par, they are also usually several months behind the regular release schedule. Upsidedown countries haven't been high on the list for a while. So while its going into the discount bin here its a blazing new release there... if you remember you wanted to see it after such a delay.

EA, Ubi, Adobe... pretty much flaming asses at every chance. MS is just built to be evil and funnel your purchases to one of its tax free divisions elsewhere on the globe, staffing these places costs them money so why not let you pay for it.

I've always wondered by never dug into, are there any pressing plants in Oz for discs? Or are they shipping it all in still like fools. One would think some smart companies would go in on building a pressing facility to help lower costs... but there I go thinking rationally.

And I am sorry you had to defend AFACT, and I'll just remind everyone they created copyright infringment in Oz to try and win in the iiNet case... oh using DtecNet the same company ip digging for... 6 strikes.

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Isn't it funny though how certain groups and people support globalization when the production facilities can be moved to the most 'beneficial' region but kick up a lot of fuss when their customers start being able to make their purchases in the same manner.

Re: Can't win.

there should be no regional restrictions of any description. there should be no difference in release dates for various regions either. as for the costs the entertainment industries and Apple charge, they are ridiculous and a big incentive for people to 'file share'. if the various industries had any thought for their customers, they would be doing what they could to make their products competitive, not more restrictive and more expensive. to my mind, these backwards thinking industries deserve to lose as much business as possible, given the lack of concern they have for those keeping their business going

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This is what happens when you leave your legacy in place.
They created this view of the world as being unconnected, and it served them. They propped up collection societies and other ways to chip away at paying the artists and keep money flowing into their coffers.
If they admitted we are all connected they would have to lower prices, and all they can see if the loss of money not the increase in sales.

Piracy lets them blame a boogeyman for their own failings to adapt to the times and remember that they should be catering to consumers, not treating them as cows to be milked as much as possible.

I know some companies get around this by

Pricing everything in US dollars. No confusion (minus having to convert it to your local currency) and a semi-fixed price that's fair (semi-fixed as it will fluctuate with currency conversion). The only thing I'm unsure of is how much banks/credit card companies charge with the exchange rate.

Re: I know some companies get around this by

Geo blocking and windowed releases MUST be the biggest reason for illegal downloading. Being in the UK, that is the reason I download US TV shows as they are aired in the US. If I had a legal alternative I would not have to download them.

THE INTERNET IS GLOBAL SO THE ANTIQUATED WINDOWED RELEASE MODEL CANNOT APPLY.

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True, but until then they'll keep writing laws which the politicians will keep passing to protect themselves from the present.

In the meantime, everyone else carries on with what the technology makes possible.

Eventually something will break, I wouldn't like to be the more backward members of the entertainment industries when that point comes, if they haven't adapted before then, they'll just be swatted out of existence.

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The Genie is out of the bottle... good luck to them to try and put it back in the bottle. It will just take time, but already we have 2 generations that grew up with the internet and Globalization they can't think of any other way. We're just waiting for the old dinosaurs to pass on.

I can understand that in many places in the world, prices have to be lower because incomes are lower. People in many African counties make less in a year what many westerner's make in a day.

But sticking to Geo-economic restrictions actually adds to the restrictions of other countries lower incomes. If we eliminated Geo-price variances on final goods the same way we have with raw materials, then in time we will see the jobs we've lost, come back to North America. If Africa and Asia had to purchase final goods with the same prices we have, they will demand the higher wages that we have.

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Yo Bob... with your statement.. Then maybe the US should be a British colony again.

Change is made any way it can, this includes laws! And in the real natural living world (excluding physics)...there is only one law! Everything get's eaten by something else.... every other law is just an abstract.

Apple Australia suck (by way of example)

Here a 32GB iPhone 5 is $899. What's the U.S. price, please?

A song on ITunes is $1.69 or $2.19 - now, granted this price was set at a time when the U.S. $1 was worth around Aus$1.70 (give or take a couple of cents) but as the exchange rate fluctuated, the price didn't change. As pointed out our dollar is currently worth (slightly) more than the U.S. dollar.

Re: Apple Australia suck (by way of example)

Why price discrimination for music and software makes sense

At the risk of being spammed here, going to have to disagree.

Price discrimination does make sense, if there is a different willingness or ability to pay.

For a good, such as music or software, which involves a high fixed cost and a low or negligible marginal cost, the way to maximize revenues is to use 2nd degree or 3rd degree price discrimination on the basis of willingness to pay. Consumers in developed markets, more able and willing to pay, are offered a higher price, while consumers in other markets or market segments, less able or willing to pay, are offered a lower price.

If you only price the good at the price that the consumers who are prepared to pay the highest price, then lots of consumers who would have bought it, won't buy it.

More importantly, if you only price the good at the lowest price that any consumers are prepared to pay, which may be zero you don't maximize revenues AND you may not cover your fixed costs, so you may no longer be able to offer the good at all.

This, for example, is why prices for music in Africa are dramatically lower than in America or Australia. In general, richer markets pay more, and smaller markets pay more (to cover the fixed costs typical of serving that smaller market.

The provider of the good should actually be relaxed about people using IP spoofing; in doing so they are demonstrating an unwillingness to pay the slightly higher price otherwise offered, and self-selecting as being willing to trade off some of their own time for a lower price on this good, and likely other goods.

Increasingly, the price that you see online will reflect a sophisticated understanding of how much you individually are prepared to pay, particularly when it comes to a bundle of goods. Hence, loss leaders and couponing.

Just thing about this: would it make any sense for all music and software to be priced at a level that Africa can afford? And if we did this, how much would get made?

Re: Why price discrimination for music and software makes sense

And this price difference keeps Africans locked into lower wages. If they had to pay more for a song, a movie, a sandwich or a car they would demand higher wages. Demands take time, but if the population demands it, it eventually becomes reality.

Re: Re: Why price discrimination for music and software makes sense

Gregg, wages rise not because workers demand them, but because of increased productivity; that's the key to Africa's empowerment and the mission of organizations such as Technoserve. The causal relationship is NOT lower prices for traded goods from foreign markets = lower wages; it's the other way round. Higher prices for the goods that Africans make, reflecting higher productivity = higher wages.

Re: Why price discrimination for music and software makes sense

Whilst I appreciate where you're coming from, I have to disagree - for example, the Humble Bundles help raise money for both developers and charities. Moreover, if the service is good and you listen to your fans, then you can drop some of the cost (especially if you make your money back, a lŠ Anmesia) and you can sell to considerably more people at the lower price point.

This is especiually relevant when there's a time-economic involved. For example, let's say you have only 5 hours of freew time in a week. Now, you can spend all that time just listening to music OR you can spend that time watching TV OR you can play video games. I'd find it highly unlikely that you could do all three simultaneously and enjoy the experience.

Also, you bring up a valid point with regards to ouponing and loss-leaders.

Re: Re: Why price discrimination for music and software makes sense

@Gregg,

Wages rise not because workers demand them, but because of increased productivity; that's the key to Africa's empowerment and the mission of organizations such as Technoserve. The causal relationship is NOT lower prices for traded goods from foreign markets = lower wages; it's the other way round. Higher prices for the goods that Africans make, reflecting higher productivity = higher wages.

@The eejit

I think our argument reinforces my point - a temporary price drop is a particular form of price discrimination. And the question of reducing the cost - the own-price elasticity of demand - is the exact approach used to set optimal prices. The optimal price, which varies by market or by market segment may in some cases be quite low.

If there is another good involved, such as a live performance or a paid/in-app upgrade, the optimal price may be zero, given the cross-elasticity of demand. So it may make sense to price recorded music at zero, give it away, to drive demand for much more rewarding live performances. You may even make it available, as some artists already have, on a pay-what-you-want basis. We call this shareware when it comes to software. And this is also the reason behind the freemium model for many mobile apps and cloud services.

@New Mexico Mark

You're absolutely right. If the markets are not, in fact, segmented effectively then you cannot pursue price discrimination effectively. The practical question is can you establish a practical segmentation? If consumers have to resort to technical measures such as IP spoofing to overcome these barriers, then clearly providers can to at least some extent. I think you're going a little far to characterize it as bordering on insanity. And these things can and do co-exist until arbitrage across the price differences becomes easy enough

So then you support my point, which is that there a lot of factors that determine wage rates. Productivity is only one of these, so it's odd to single that out. Another factor is workers demanding better pay, and it seems odd that you write this one off.

I was responding to @Gregg's point, which suggested a causal mechanism that went higher prices for goods workers purchase, thence demands for higher wages, thence higher wages. That causal mechanism does not obtain; all things being equal, an employer won't necessarily pay higher real wages because of higher real prices for the goods that their workers buy.

When making geographic comparisons, the driving factor by far for the enormous differences in wages are the enormous differences in economic productivity.

Relatively short-term and localized factors such as unemployment may also have some impact, but are tiny effects relative to productivity differences between countries, which was the point at issue.

And the second point about Moravec's paradox is about relative productivity as well

Re: Why price discrimination for music and software makes sense

Disagreement <> Spam

At any rate, I understand the "what the market will bear" argument. The problem is when you try to artificially segment a global market into regional markets using a global system (the Internet). It's either hubris or foolishness bordering on insanity -- take your pick. Either way, one (artificial digital borders) or the other (the Internet as we know it) cannot co-exist for long.

Frankly, I'm rooting for a free Internet to win against entrenched pride and ignorance. But then again, I've always tended to root for the underdog.

The costs of marketing, payola, paying their licensing fees to their own collection societies in multiple segments of the planet.
Technology has improved and made it easier to produce music, Dan Bull doesn't have a giant budget and puts works out there.

Their costs are inflated and paid to themselves in many cases, with many hands getting a grab out of the pot.

Re: Why price discrimination for music and software makes sense

Michael, my argument, and I'm surprised you missed it, is that the marketplace for DIGITAL goods in particular is global by the very nature of the internet. Segmenting through false barriers attempts to maximize profits through the methods you describe, but that's as bullshit a tactic as tying digital good prices to an individual's income level. In the digital marketplace, it doesn't make sense.

More importantly, it doesn't work either. False walls come crumbling down with the most minor of technical know-how....

Re: Re: Why price discrimination for music and software makes sense

@Dark Helmet

I don't think I missed your argument.

I agree that the Internt is *mostly* global, noting major exceptions for countries with censorship and restrictive regimes such as China.

That does NOT mean that the *market* for DIGITAL goods is intrinsically global. The reality, which we may regard as unfortunate, is that to at least some extent the market is NOT global. For almost everyone, the channel may be regional, and the payment mechanism is almost always localized, and it takes some effort to overcome this.

The reality is that many consumers will either not know how or not care enough about the price to incur the transaction costs involved to invest in either or both IP spoofing or getting a credit card in other domain.

Let's applaud the Australian consumer group for advocating this and informing people, thereby reducing the barrier. Australian consumers who are sufficiently price-sensitive and technically savvy will, I'm sure, embrace this. More may do so because this makes them aware.

BUT, for many, that's going to be too much trouble. These are real barriers.

And FWIW, tying the price of goods to an individual's income level makes perfect sense. It's not bullshit; it's economics. And in many circumstances it makes perfect sense, maximizing both individual welfare and, more importantly, total welfare. A good can be made more widely available, and priced lower for many consumers if there are other consumers who are prepared to pay a higher price.

You characterize this as 'the most minor of technical know-how'... If that is indeed the case, then the barriers WILL come tumbling down.

Go look at the 'online guide'; all it does is tell consumers that it can be done. A whole lot more work is required, perhaps including things like configuring DNS settings...

For most consumers this is NOT 'the most minor of technical know-how' - it takes time and effort and technical know-how

The question if we accept that it is not as easy to spoof ips is: Is it fair to discriminate prices on basis of technical knowledge and regions for online goods and services?
I would say that kind of discrimination is pretty iffy!
I know I can break an IP-ban and DNS-block and even break more sofisticated locks. It is a question of others not having the same opportunities that makes me question this kind of discrimination!

The real elephant in the room is actually the bad IPR-laws. If it is illegal to spoof IP, break a DNS-blocks or regionlocking is seen as DRM and made illegal to break, we are further down the road straight to arbitrary discrimination. In that case we are going to see a massive surge of encryption and that is kind of the fear of all sides since it closes some of the freedom of the internet, while making surveillance and thereby law-enforcement almost impossible. Again, there is an advantage to the computer-savvy. Given these kinds of laws are passed in Japan and USA has made statements to the same extend, we are really in need of a descalation of the political armsrace.

We're NOT discriminating primarily on the basis of technical knowledge (although that certainly does happen) but on the basis of willingness and ability to pay, for which the mechanism is technical.

And it's not just the availability of the tools, it's taking the time and trouble to make use of them. Go check out TorVPN's how to page; it includes a 2 minute long video. For many people, that's just not worth the effort.

There are, as you note, some people who are being discriminated against on the basis of their technical knowledge: price-sensitive, unwilling or unable to pay the offered price in Australia and UNABLE to figure out how to use TorVPN or one of the other services. True, this group loses out.

But overall, price discrimination makes economic sense for both producers and for consumers, provided that (1) different consumers have different ability or willingness to pay and (2) there is an effective market mechanism for price discrimination.

Whether or not arbitrary discrimination makes sense depends on the meaning of arbitrary:

- based on or determined by *individual preference* or convenience rather than by necessity or the intrinsic nature of something - YES

- existing or coming about seemingly at random or by chance or as a capricious and unreasonable act of will - NO

And the issues with DRM are not so much DRM itself, but (1) poor implementation and (2) disproportionate penalties for breaking or evading it, out of all proportion to the real economic harm

I disagree. The issues with DRM are DRM itself. I cannot imagine an implementation that doesn't prevent me from doing legal things that I want to do. Not even Steam, which is arguable the most palatable implementation of DRM in existence today.

This is not a technical issue at all. It's a logical one. It is logically incongruous to think that it's possible to restrict the ways that content can be used without having an adverse impact on the legal use of that content.

Let's be pragmatic rather than perfectionist. While I concur, much, perhaps most DRM is utterly crappy, some, such as Steam, is clearly 'good enough'. The success of iTMS in its DRM era demonstrated that there was adequate demand despite DRM, if it was done at least reasonably well.

While, I concur that restrictions on the way that content can be used may have some adverse impact on its legal use, the key question is whether or not this trade-off is worthwhile. Demonstrably it is, in many cases.

Now that's an empirical observation; at least as far as I'm concerned the practical implementations of DRM in many cases are either or both user unfriendly or unduly restrictive. I do think content providers are missing out on a huge market opportunity because of artificial and outmoded restrictions that reflect antiquated analog business models. Nevertheless, there are lots of circumstances in which DRM makes sense.

Nevertheless, there are lots of circumstances in which DRM makes sense.

Such as? (and makes sense to who, outside of DRM companies?) I can't think of a single circumstance where it makes sense, but my imagination might be crippled here. You yourself say that DRM is causing businesses to leave a lot of money on the table, which is clearly true. It also does little to nothing in terms of stopping piracy that can't be accomplished better in less customer-hostile ways.

As I said, DRM can be done in a way that many people tolerate. That's a far cry from saying that the problem with DRM is that it's poorly done. The best DRM in the world is only tolerable -- it still reduces the value of the goods.

While, I concur that restrictions on the way that content can be used may have some adverse impact on its legal use, the key question is whether or not this trade-off is worthwhile. Demonstrably it is, in many cases.

How so? Where has it been demonstrated that using DRM is a net benefit to a company?

There are other ways to deal with #1 without doing a #2 all over your customers. Retailers and producers have dealt with this for years in other ways, such as sales and coupons. Even Steam routinely has sales to capture market segments that would never pay the normal price.

Re: Why price discrimination for music and software makes sense

> Increasingly, the price that you
> see online will reflect a sophisticated
> understanding of how much you individually
> are prepared to pay, particularly when
> it comes to a bundle of goods. Hence,
> loss leaders and couponing.

All of that may be true from an economic point of view, but from a legal perspective, a company doesn't have a right to enforce its pricing decisions through force of law, or make it a crime to circumvent them. People shouldn't risk jail time for buying something somewhere a big corporation doesn't want them to.

Only half of the equation

Everyone loves to rage against the publishers, but they are only half of the equation. Some distributors and retailers have threatened to bar products from publishers if they didn't inflate their digital prices elsewhere. They see digital as "unfair" competition and demand that publishers "level" the playing field, even when it makes no sense from the publisher's perspective. Even in the internet age, many publishers still depend on traditional sales of physical media, a boycott from a major retailer like Walmart would be a major blow. I wouldn't be at all surprised if distributors and retailers who were used to the historically higher cost of having physical media shipped across the globe had a hand in the inflated digital prices in Australia.

Personally, I think digital prices should be independent of physical prices, simply because the economics and markets are very different. If physical media still has enough value to offset the higher cost of production and distribution, then market will continue to support it.

I agree

This is entertaining.

try to go and play games in yahoo at Any site not in the USA, you cant.
try to Watch TV channels, like cartoon network, in other countries..the USA wont let you and they are free in other nations, there is a restriction for the area.
Thee are also PRICE restrictions in other countries..A watch in the EU is 3/4 the price of the USA..

The USA may ship metals/wood to other countries but WE PAY the freight. We import from canada(wood) and there is a 25% tax on it.(against NAFTA)

Steam pricing "parity"

A great site to see huge price discrepencies is steamprices. They have a top rip off section and show things like Soldier of Fortune costing up to 80% more in Australia. It's ridiculous. Yet if you try to use a VPN to buy the game cheaply, steam can, and has, blocked whole accounts, meaning you lose access to all previous games you bought too.

Steam is usually a good service, except for this bound to fail policy of price variations on a digital product.